Chapter 7 Bankruptcy: What Is A Notice Of Abandonment?
Americans file a huge number of chapter 7 bankruptcy applications every year with 1,139,601 cases filed in 2010. The main advantage of chapter 7 bankruptcy is convenience. You simply surrender all of your assets to a bankruptcy trustee who is responsible for liquefying the assets and distributing money back to creditors based on the negotiated settlement. Although you are required to surrender all nonexempt assets, the trustee has the right to abandon an asset by sending you a Notice of Abandonment.
What Is a Notice of Abandonment?
If you receive a Notice of Abandonment, it means that the bankruptcy trustee has surrendered the particular asset listed and will not be liquefying it in favor of paying back your creditors. This means that the asset will be returned back to you and any creditors that have an interest on the asset even if the asset is considered to be nonexempt. Nonexempt assets include real estate, pensions, retirement accounts, household goods, vehicles, clothes and other items of value.
What Happens After an Asset Has Been Abandoned?
This may mean that you can keep the asset if it is already paid in full, or you will have to negotiate and settle with the creditor privately if you still owe a balance. For example, in the latter situation, creditors can proceed with foreclosing a property if you still owe a lien.
If the bankruptcy trustee has decided to abandon an asset, he or she will send a Notice of Abandonment to you and all of the creditors, so that all creditors know where you stand financially. Some trustees provide additional services, and may help you negotiate a reasonable repayment plan with the creditors involved if this is the case.
Why Would a Trustee Abandon an Asset?
To determine whether it is likely that the bankruptcy trustee will abandon the asset, you need to consider the value of the asset and whether liquefying the asset will yield anything for the creditors. Your bankruptcy trustee will need to take into account the bankruptcy exemptions that you are entitled to when calculating whether liquefying the asset will be beneficial. Exemptions vary by state. For example, you are entitled to a homestead exemption of $15,000, whether it is a farm, mobile home, condominium or anything else, if you reside in Illinois.
A bankruptcy trustee may also choose to abandon a property if the asset would be hard to liquefy or if the cost of liquefying the asset exceeds the value of the asset. Keep in mind that there are legal fees and other charges that need to be factored in as well when liquefying a particular asset, like the hourly rate or commission charged by the bankruptcy trustee for his or her services. If it will simply take too much time, the commission charged by the trustee may take up such a large portion of the recoverable funds that there may be little left to distribute to creditors.
Once you receive a Notice of Abandonment from a trustee, know that the trustee is formally giving you back control of the asset that is listed in the letter. This means that you are now responsible for any remaining debts that may be on the property. If you do not owe any debt on the asset, the Notice of Abandonment will signify that the trustee is formally giving you back the asset for you to keep, as liquefying the asset will not result in sufficient funds for paying back any of your creditors.
For more information, or if you have other questions about filing for bankruptcy, it's best to work with an experienced bankruptcy attorney.